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Summary:

AOL’s reported interest in merging with Yahoo seems more like a desperation move or a Hail Mary pass than any kind of coherent strategy for success on the part of either company. Neither has shown any evidence that it understands the new realities of the web.

fail

Can tying two rocks together produce something that will fly with investors? That’s the question that leaps to mind upon reading that AOL is mulling some kind of takeover/merger bid for Yahoo, which may or may not involve a restructuring of Yahoo and backing from private equity firms, according to a somewhat confusing report in the Wall Street Journal late Wednesday. A subsequent report by Bloomberg says that Yahoo has hired an investment bank to handle any overtures from AOL and private equity, which sources told the wire service are in the works. All the sources involved say the talks are preliminary and warn that a deal may never take place. It’s a good thing that they do, because an AOL-Yahoo merger sounds like the worst idea since… well, since AOL and Time-Warner.

To recap that mind-boggling train wreck, AOL merged with Time Warner just as the Internet investment bubble was peaking in the late 1990s, and the combined company quickly started to hemorrhage billions of dollars in market value, making it arguably one of the worst business deals since the dawn of recorded history. A combination of AOL and Yahoo may not be quite that bad, but taking two old and faded Internet giants and roping them together sounds more like a Hail Mary pass (or a trial balloon) than it does like a coherent strategy for growth or success — for either company.

AOL’s new CEO Tim Armstrong has had some success in laying out his vision for the company, which involves turning the former portal into a media and content producer via ventures such as Patch.com — which is spending $50 million on hyper-local journalism — as well as a blogging strategy that led to the recent acquisition of TechCrunch. The AOL chief executive has arguably done a better job of selling this vision than Yahoo CEO Carol Bartz has of convincing investors (or users, for that matter) that the company has any kind of over-arching strategy, apart from selling off or outsourcing virtually everything, including search, and trying to build its own blogging/content model via acquisitions like Associated Content.

The reality is that both companies — and Yahoo in particular — have failed to show any compelling evidence that they understand what the real-time web is about, or how they are going to get from where they are (which in AOL’s case in particular, is not a good place) to where they need to be in order to take advantage of that fundamental shift in how the web functions (which Om described here). It’s true that both companies still have millions of unique monthly visitors, and advertising-based businesses that cater to those users, but the future of that kind of platform is murky at best.

The two portals are like fish trying to grow legs and run — not an easy transformation to engineer —  and it’s not clear how merging into one giant old mega-portal is going to help them do that. Of course, if such a deal does actually proceed it will probably be fun to watch, in the same way that people often slow down to watch a car accident.

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  1. Dennis McDonald Thursday, October 14, 2010

    Sad but probably true. I don’t relish watching failure among the once great. Let’s hope for the best.

  2. Root cause: Yahoo and AOL decision makers/principals have myopic “all in” mentality. Failure to see the individual value of the component parts ( of which Yahoo has many ) exacerbated by obsession with “head count = $$$.

    I actually want to see this immanent train wreck occur, with the hope it’ll clear out the Bernie Madoff who are at the helms of both companies…maybe Flickr, Yahoo Pipes and Fire Eagle will wash through the drain on the floor of the slaughterhouse, end up as stand alone entities.

  3. Interesting post. I also dig the general snarkiness of it.

  4. Yahoo Reactions: – NYTimes.com Thursday, October 14, 2010

    [...] tying two rocks together produce something that will fly with investors?” GigaOm’s Matthew Ingram asks, adding, “An AOL-Yahoo merger sounds like the worst idea since… well, since AOL and Time [...]

  5. No, derr actually AOL is buying Facebook. Then Google is buying Oracle so they don’t get sued, but Oracle is buying Yahoo after which they will merge with AOL, who is doing a reverse merge with Microsoft to form a superDUPERcorporation: YAFMOG. One company to rule them all!!!11one

  6. A Merger Could Really Help Them Beat Google, writes Jessica Vascellaro and Anupreeta Das at The Wall Street Journal: “A combined Yahoo-AOL would have greater scale to compete in online advertising against industry juggernaut Google Inc. While both companies draw huge amounts of users, their advertising businesses have struggled as they’ve faced competition from a range of websites.”

  7. Painful or Not, Yahoo is Doing What It Needs To: Tech News « Friday, December 17, 2010

    [...] — and is so similar to the restructuring that AOL has been doing that there have been reports about a merger between the two (which would likely help neither). But for the moment at least, cutting back on the number of pies [...]

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